Morgan Sindall Group Regulatory News (MGNS)

20 Feb 2007 07:03

Morgan Sindall PLC20 February 2007 Morgan Sindall Plc ('Morgan Sindall' or 'the Group') Preliminary results for the year ended 31 December 2006 Morgan Sindall plc, the construction group that operates within four divisions;Fit Out, Construction, Infrastructure Services and Affordable Housing todayannounces record preliminary results 2006 2005Revenue £1,497m £1,297m + 15%Operating profit £46.2m £39.9m + 16%Profit before tax £47.6m £41.7m + 14%Cash balance £95.4m £72.0m + 33%Order book £3.3bn £2.8bn + 19%Earnings per share 78.2p 70.7p + 11%Final dividend per share 20.0p 18.0p + 11% Group Highlights • Strategy delivering long-term sustainable growth • Growth continues to be driven by Fit Out and Affordable Housing • Infrastructure Services secures £800m of new contracts • Group's forward order book at a healthy £3.3bn in favourable market conditions • Group's margins maintained at 3.2% with strong cash generation Divisional Highlights Fit Out • Record result with operating profit up 38% to £22.6m (2005 £16.4m) reflecting increased revenue and margin • Buoyed by strong market conditions, particularly in Financial and Professional Services in London and the Technology sector in the Thames Valley • Specific focus on larger jobs • Similar market conditions expected to prevail in 2007 with forward order book of £187m (2005: £134m) Construction • Improved operating profit to £3.4m (2005 £3.2m) • Success in winning new frameworks • £491m forward order book for 2007: exciting prospects in health and emergency services Infrastructure Services • Significantly increased revenue, however operating profit of £5.1m impacted by restructuring and mobilisation of new contracts • Strong underlying market evidenced by good order flow • Forward order book of £1.2bn against £824m a year ago • Anticipating strong growth in 2007 Affordable Housing • Increased margin with record operating profit of £24.0m (2005 £18.7m) • Government's Decent Homes programme underpins performance • Continued success in mixed tenure developments • Future growth to be driven by larger, more complex regeneration schemes in the medium term • 2007 order book of £1.4bn John Morgan, Executive Chairman, commented: "2006 has predominantly been driven by the excellent performance of both Fit Outand Affordable Housing. At the same time we have had success at Constructionand in building the order book in Infrastructure Services. We are confidentthat the foundations have been laid for 2007 to be another successful year." 20 February 2007 ENQUIRIES: College Hill Tel: 020 7457 2020Kate PopeMatthew Smallwood Morgan Sindall plc Tel: 020 7307 9200John Morgan, Executive ChairmanPaul Smith, Chief ExecutiveDavid Mulligan, Finance Director Preliminary Statement In 2006 Morgan Sindall continued to make excellent progress. Profit before taxincreased by 14% to £47.6m (2005: £41.7m) on revenue that increased by 15% to£1.5bn (2005: £1.3bn). Earnings per share increased by 11% to 78.2p (2005:70.7p). Accordingly the Board recommends an increase in the final dividend to20.0p (2005: 18.0p) giving a total dividend for the year of 28.0p (2005: 25.0p). Our strategy remains the same. It is to develop a leading position in each ofour chosen market sectors. Our Fit Out and Affordable Housing divisionsdemonstrate the value of this approach. Both had very successful years as aresult of their strong market positions and favourable trading conditions.Construction continued with its strategy of focussing on key sectors andframework contracts, and delivered an improved result. Infrastructure Servicessecured a significant amount of new civil engineering and utilities work, whichshould result in increased revenue and profit moving forward althoughrestructuring of the division and the mobilisation of new contracts during 2006impacted its profit for the year. Overall our margins have remained steady at 3.2% (2005: 3.2%) while cashgeneration was particularly strong. The Group ended 2006 with net cash of £95m(2005: £72m). Board changes Jack Lovell will retire from the Board as a non-executive director at theforthcoming AGM in April. Jack, one of the founding directors of the Group, hasmade a significant contribution to its development over the past 30 years and weare extremely grateful for his input and guidance throughout that time. Outlook Morgan Sindall has made an encouraging start to 2007 with further excitingopportunities being secured by all our divisions. The forward order book at thestart of the year stood at £3.3bn against £2.8bn last year and we are seeingfavourable market conditions across all of our chosen sectors. In the coming year Fit Out will be seeking to further expand its larger projectscapability and Affordable Housing will be targeting more complex regenerationschemes. Construction will continue with its focus on key sectors and frameworkcontracts while Infrastructure Services' priority will be on successfullymobilising and delivering the work secured in 2006, as well as securing furtheropportunities. Overall we are very pleased with the progress made in 2006 and, given thecurrent strength of our divisions and the healthy market sectors in which theyoperate, we expect to make further progress over the coming year. Divisional performance Fit Out 2006 2005Revenue £426m £323mOperating profit £22.6m £16.4mMargin 5.3% 5.1%Order book £187m £134m Fit Out provides fit out and refurbishment services to the commercial propertymarket. It operates through four businesses, namely Overbury, Morgan Lovell,Vivid Interiors and Backbone Furniture. It is a national business operating inboth the public and private sectors. Against the backdrop of a buoyant commercial property sector Fit Out grewstrongly and increased its market share in 2006. Revenue increased by 32% to£426m (2005: £323m) and the division delivered a record operating profit of£22.6m (2005: £16.4m) which was an increase of 38% on the previous year. Themargin also strengthened to 5.3% (2005: 5.1%). The division's geographic expansion continued with an increasing number of largecontracts being undertaken outside London. The division also strengthened itspresence in the hotel, retail, leisure and entertainment sectors therebyextending the division's offering beyond the commercial offices sector. The division starts 2007 with a forward order book of £187m (2005: £134m). Thecontinued strength of the fit out market has been an important contributor tothe past success of this division and our expectation is that similar marketconditions will continue in 2007. Construction 2006 2005Revenue £343m £336mOperating profit £3.4m £3.2mMargin 1.0% 1.0%Order book £491m £504m Bluestone operates through a network of 25 offices throughout England and Walesserving the health, education, commercial and light industrial sectors,delivering contracts principally through negotiated and framework arrangements. The division made progress in 2006 in a generally favourable market. Operatingprofit increased to £3.4m (2005: £3.2m) on revenue of £343m (2005: £336m). Themargin was maintained at 1.0%. During 2006 the division was successful in securing a number of new frameworkarrangements including those with South East Centres of Excellence and DorsetCounty Council. In addition it was appointed construction partner for the Bury,Glossop and Tameside NHS LIFT project which is anticipated to commence in thefirst half of 2007. Bluestone enters 2007 with a forward order book of £491m (2005: £504m). Thedivision also has a number of potential contracts driven by investment ledprojects in the health and emergency services sectors which we expect willunderpin modest growth of this division in 2007. Infrastructure Services 2006 2005Revenue £324m £248mOperating profit £5.1m £6.0mMargin 1.6% 2.4%Order book £1.2bn £824m Infrastructure Services' business, Morgan Est, provides civil engineering andutilities services to the water, gas, electricity and transport sectors acrossthe UK. In 2006 the division delivered an operating profit of £5.1m (2005: £6.0m) onrevenue of £324m (2005: £248m). The margin was impacted by a restructuring ofthe business during the year and also by mobilisation costs on a number ofrecently won contracts. In March the division acquired from M J Gleeson plc its non-track rail businessfor £23m. This business, which specialises in station refurbishment andunderground works, has performed well and contributed an operating profit of£1.0m on revenue of £21m. In 2006 the division secured £800m of new orders which have contributed to asignificant increase in its forward order book starting the year at a record£1.2bn (2005: £824m). This forward order book includes key projects such as theA876 Upper Forth Crossing at Kincardine and Belfast sewer tunnels, M1 wideningat junctions 25 to 28, as well as frameworks with United Utilities, which runsthe gas mains system on behalf of Northern Gas Networks, and E.ON UK's powerdistribution business Central Networks, which have helped to lengthen the orderbook. Overall the market outlook for infrastructure projects is much improved. Therecently secured contracts are continuing to mobilise and we anticipate stronggrowth for this division in 2007. Affordable Housing 2006 2005Revenue £404m £390mOperating profit £24.0m £18.7mMargin 5.9% 4.8%Order book £1.4bn £1.3bn The Affordable Housing division operates through Lovell, a leading provider ofaffordable housing and refurbishment services. The division delivers new buildsocial housing and new build open market affordable housing as well as therefurbishment of social housing under framework arrangements. Its particularexpertise is mixed tenure urban regeneration schemes, which combine both its newbuild and refurbishment skills and bring together private and public ownershipin a single development. The division achieved a record operating profit in 2006 of £24.0m (2005: £18.7m)on revenue of £404m (2005: £390m). During the year the division secured majornew schemes at Beswick and Garston-under-Bridge and was appointed preferredbidder for a £200m PFI housing scheme in Manchester, which is expected tocommence in mid-2007. The Decent Homes programme also continues to account for asignificant proportion of the division's workload. The margin increased to 5.9%(2005: 4.8%) as a result of a more favourable work mix. Lovell starts 2007 with an order book of £1.4bn (2005: £1.3bn). While theDecent Homes programme is expected to continue through to at least 2012, thedivision anticipates growth in the medium term to be primarily driven by larger,more complex urban regeneration schemes. Lovell's work mix is thereforeexpected to move towards these larger schemes over the coming years. Financial review Revenue and operating profit Revenue increased by 15% to £1.5bn (2005: £1.3bn), driven by growth in alloperating divisions. Fit Out's revenue increased by 32% to £426m; Constructionby 2% to £343m; Infrastructure Services by 31% to £324m; Affordable Housing by4% to £404m. Group operating profit increased by 16% to £46.2m (2005: £39.9m). Thisimprovement was due to strong growth at Affordable Housing and Fit Out withmodest progress also made by Construction, offset by a reduction in operatingprofit at Infrastructure Services. Fit Out increased its operating profit by38% to £22.6m (2005: £16.4m), Affordable Housing by 29% to £24.0m (2005: £18.7m)and Construction by 4% to £3.4m (2005: £3.2m). Infrastructure Services'operating profit reduced slightly to £5.1m (2005: £6.0m). The cost of GroupActivities was £8.1m (2005: £4.8m) reflecting principally increased costs ofshare based payments, Information Technology and investment related activity.The share of results of joint ventures was a loss of £0.8m (2005: profit of£0.4m). Profit before and after tax Profit before tax of £47.6m was 14% ahead of last year's £41.7m. This includesnet interest of £1.4m (2005: £1.8m). Profit after tax was £32.8m (2005: £29.6m).The tax charge was £14.8m (2005: £12.1m) giving an effective tax rate of 31%(2005: 29%). Earnings per share and dividends Basic earnings per share increased by 11% to 78.2p (2005: 70.7p). The finaldividend is proposed at 20.0p (2005: 18.0p) giving a total dividend for the yearof 28.0p which is 12% higher than last year (2005: 25.0p). Earnings cover thedividend 2.8 times (2005: 2.8 times). The proposed dividend will be paid on 2May 2007 to shareholders on the register at 10 April 2007. Equity and capital structure Equity increased to £141.9m (2005: £116.6m). The number of shares in issue at31 December 2006 was 42,520,090 (2005: 42,315,970). The increase of 204,120shares was due to the exercise of options under employee share option schemes.There were no other new issues during the year. Cash flow and treasury Net cash from operating activities was £47.9m (2005: £14.5m) as a result ofincreased profitability and improvements in working capital. The net payment toacquire a subsidiary was £18.2m (2005:nil), capital expenditure was £3.2m (2005:£4.7m) and payments to increase our interests in joint ventures were £0.9m(2005: £6.2m), reflecting ongoing investment in the business. After paymentsfor tax, dividends and servicing of finance the net increase in cash and cashequivalents was £23.4m resulting in a year end balance of £95.4m. It isanticipated that these resources will be used for the continued growth of theGroup's businesses. Consolidated income statement (unaudited)For the year ended 31 December 2006 Notes 2006 2005 £'000s £'000s Continuing operationsRevenue 1 1,496,844 1,296,708 Cost of sales (1,331,423) (1,154,118) Gross profit 165,421 142,590 Administrative expenses (118,401) (103,109) Share of results of joint ventures (796) 425 Operating profit 1 46,224 39,906 Investment revenues 3,807 3,661 Finance costs (2,421) (1,867) Profit before tax 47,610 41,700 Tax 2 (14,797) (12,125)Profit for the year from continuing operations attributable to equity holders of the parent company 32,813 29,575 Earnings per share From continuing operations Basic 4 78.2p 70.7p Diluted 4 76.3p 68.8p There are no discontinued activities in either the current or preceding year. Consolidated balance sheet (unaudited)At 31 December 2006 2006 2005 £'000s £'000sNon current assetsProperty, plant and equipment 16,623 16,403Goodwill 72,705 56,729Interests in joint ventures 5,200 10,881Investments 103 103Deferred tax 3,584 2,485 98,215 86,601Current assetsInventories 86,805 87,571Trade and other receivables 280,945 235,056Cash and cash equivalents 95,433 72,018 463,183 394,645 Total assets 561,398 481,246 Current liabilitiesTrade and other payables (406,795) (352,156)Current tax liabilities (6,403) (6,295)Obligations under finance leases (1,314) (766) (414,512) (359,217) Net current assets 48,671 35,428 Non current liabilitiesRetirement benefit obligation (2,534) (3,351)Obligations under finance leases (2,457) (2,059) (4,991) (5,410) Total liabilities (419,503) (364,627) Net assets 141,895 116,619 EquityShare capital 2,126 2,116Share premium account 26,169 26,014Capital redemption reserve 623 623Own shares (3,387) (1,775)Hedging reserve (795) (2,238)Retained earnings 117,159 (91,879) Total equity 141,895 116,619 Consolidated statement of recognised income and expense (unaudited)For year ended 31 December 2006 2006 2005 £'000s £'000s Actuarial gains/(losses) on defined benefit liabilities 700 (1,284) Income tax credit in respect of share options taken directly to 930 -equityDeferred tax on retirement benefit obligations (282) 312Movement on hedged items on cash flow hedges 1,443 (2,238) Net income/(expense) recognised directly in equity 2,791 (3,210) Profit for the year from continuing operations 32,813 29,575 Total recognised income and expense for the year attributable to equity shareholders 35,604 26,365 Consolidated cash flow statement (unaudited)For the year ended 31 December 2006 Notes 2006 2005 £'000s £'000s Net cash from operating activities 5 47,909 14,477 Investing activitiesInterest received 3,775 3,686Dividends received from joint ventures 7,225 336Proceeds on disposal of property, plant and equipment 1,112 1,433Purchases of property, plant and equipment (3,216) (4,680)Payments to acquire interest in joint ventures (896) (6,190)Acquisition of subsidiary (23,035) -Net cash acquired on acquisition of subsidiary 4,809 - Net cash used in investing activities (10,226) (5,415) Financing activitiesPayments to acquire own shares (1,612) (782)Dividends paid (10,914) (8,459)Repayments of obligations under finance leases (1,787) (1,354)Repayment of loan notes (120) (240)Proceeds on issue of share capital 165 344 Net cash used in financing activities (14,268) (10,491) Net increase/(decrease) in cash and cash equivalents 23,415 (1,429) Cash and cash equivalents at beginning of year 72,018 73,447 Cash and cash equivalents at end of yearBank balances and cash 95,433 72,018 Notes (unaudited) For the year ended 31 December 2006 1. Business segments For management purposes, the Group is organised into four operating divisions:Fit Out, Construction, Infrastructure Services and Affordable Housing. Thedivisions are the basis on which the Group reports its primary segmentinformation. Segment information about the Group's continuing operations is presented below: 2006 2005 Operating Operating profit/ Revenue profit/(loss) Revenue (loss) £'000s £'000s £'000s £'000s Fit Out 425,629 22,599 322,618 16,398 Construction 343,316 3,358 335,750 3,214 Infrastructure Services 323,735 5,098 247,938 5,974 Affordable Housing 404,164 24,013 390,402 18,682 Group Activities - (8,048) - (4,787) 1,496,844 47,020 1,296,708 39,481 Share of results of joint ventures (796) 425 Operating profit 46,224 39,906 Investment revenues 3,807 3,661 Finance costs (2,421) (1,867) Profit before tax 47,610 41,700 Tax (14,797) (12,125) Profit for the year from continuing operations 32,813 29,575 All the Group's operations are carried out in the United Kingdom and the ChannelIslands. 2. Tax 2006 2005 £'000s £'000s Current tax:UK corporation tax at standard rate of 30% (2005: 30%) 14,653 12,241Adjustment in respect of prior years 517 140 15,170 12,381 Deferred tax:Current year (72) (214)Adjustment in respect of prior years (301) (42) Income tax expense for the year 14,797 12,125 Notes continued (unaudited) For the year ended 31 December 2006 2. Tax (continued) The charge for the year can be reconciled to the profit per the income statementas follows: 2006 2005 £'000s % £'000s % Profit before tax 47,610 41,700 Income tax expense at standard rate 14,283 30.0 12,510 30.0 Tax effect of:Share of results of joint ventures 239 0.5 (128) (0.3)Expenses that are not deductible in determining 227 0.5taxable profits 107 0.3Movements not reflected in the income statement (168) (0.4) (462) (1.1)Adjustments in respect of prior years 216 0.5 98 0.2 Income tax expense and effective tax rate for the year 14,797 31.1 12,125 29.1 The total amount of deferred tax assets that are not recognised in the financialstatements in relation to losses carried forward amount to £165,000 (2005:£402,000) due to the uncertainty of the availability of future profits againstwhich the losses can be recovered. 3. Dividends 2006 2005 £'000s £'000s Amounts recognised as distributions to equity holders in the period: Final dividend for the year ended 31 December 2005 of 18.00p (2004: 13.25p) per share 7,549 5,551 Interim dividend for the year ended 31 December 2006 of 8.00p (2005: 7.00p) per share 3,365 2,929 10,914 8,480 Proposed final dividend for the year ended 31 December 2006 of 20.00p (2005: 18.00p) per share 8,415 7,617 The proposed final dividend is subject to approval by shareholders at the annualgeneral meeting and has not been included as a liability in these financialstatements. The proposed dividend will be paid on 2 May 2007 to shareholders onthe register at 10 April 2007. The ex-dividend date will be 4 April 2007. Notes continued (unaudited) For the year ended 31 December 2006 4. Earnings per share There are no discontinued operations in either the current or prior year. The calculation of the basic and diluted earnings per share is based on thefollowing data: Earnings 2006 2005 £'000s £'000s Earnings for the purposes of basic and dilutive earnings per share 32,813 29,575being net profit attributable to equity holders of the parentcompany Number of shares 2006 2005 No. '000s No. '000s Weighted average number of ordinary shares for the purposes of 41,949 41,810basic earnings per share Effect of dilutive potential ordinary shares: Share options 877 893 Long Term Incentive Plan shares - 265 Conditional shares not vested 179 - Weighted average number of ordinary shares for the purposes of 43,005 42,968diluted earnings per share Notes continued (unaudited) For the year ended 31 December 2006 5. Reconciliation of operating profit to net cash from operatingactivities 2006 2005 £'000s £'000s Operating profit 46,224 39,906 Adjusted for:Share of results of joint ventures 796 (425)Depreciation of property, plant and equipment 4,904 4,505Expense in respect of share options 959 589Defined benefit pension payment (240) (240)Defined benefit pension charge 123 82Gain on disposal of property, plant and equipment (121) (919) Operating cash flows before movements in working 52,645 43,498capital Decrease/(increase) in inventories 766 (26,754)Increase in receivables (35,761) (31,969)Increase in payables 46,461 43,118 Cash generated from operations 64,111 27,893 Income taxes paid (13,937) (11,658)Interest paid (2,265) (1,758)Net cash from operating activities 47,909 14,477 Additions to property, plant and equipment during the year amounting to £2.1mand additions to leasehold property amounting to £0.5m were financed by newfinance leases. Cash and cash equivalents (which are presented as a single class of assets onthe face of the balance sheet) comprise cash at bank and other short-term highlyliquid investments with a maturity of three months or less. 6. Accounting policies This announcement is prepared on the basis of accounting policies as stated inthe financial statements for the year ended 31 December 2006. The financial information set out in the announcement does not constitute theCompany's statutory accounts for the years ended 31 December 2006 or 2005. Thefinancial statements for the year ended 31 December 2005 have been delivered tothe Registrar of Companies. The auditors reported on those accounts; theirreport was unqualified and did not contain a statement under s237(2) or (3)Companies Act 1985. No accounts for the Company in respect of the year ended 31 December 2006 havebeen delivered to the Registrar of Companies, nor have the auditors of theCompany made a report under Section 236 of the Companies Act 1985 in respect ofany accounts for that financial year. The statutory accounts for the year ended 31 December 2006 will be finalised onthe basis of the financial information presented by the directors in thispreliminary announcement, will be posted to shareholders on or about the 14March 2007 and will be delivered to the Registrar of Companies following theCompany's annual general meeting. This information is provided by RNS The company news service from the London Stock Exchange